Pharmacies May Get Exemption from Antitrust

Published February 1, 2008

The U.S. House Judiciary Committee has approved a bill creating an exemption in antitrust law to enable independent pharmacies to negotiate contracts with Medicare Part D plans and private pharmacy benefit managers (PBMs).

Opponents warn passing the measure will create higher drug prices for consumers.

At press time, H.R. 971, the Community Pharmacy Fairness Act of 2007, had not been scheduled for a floor vote. The measure was sponsored by Rep. Anthony Weiner (D-NY) and Rep. Jerry Moran (R-KS).

Since the creation of the Medicare Part D drug plan, community pharmacies and PBMs have been competing for the business of senior citizens.

PBMs generally have offered inexpensive mail-order drug plans. But since many seniors prefer to pick up their drugs in person at the local drugstore, PBMs are trying to get their business by offering bigger pharmacy networks.

Independent Pharmacies

Under current law, PBMs negotiate the reimbursement rates and dispensing fees pharmacies receive when filling prescriptions for drug plan members. But they must negotiate those fees with local drug stores, and the more seniors a pharmacy network has, the more power it wields in those negotiations.

Community pharmacies that do not have the same negotiating power as larger pharmacy chains say they have no alternative but to accept lower reimbursement rates from health plans or forfeit the business of seniors in Medicare Part D plans. So they asked the federal government to pass a law nullifying the advantage held by their competition.

“This bill provides the much-needed regulatory relief for independent pharmacies in competing with the larger pharmacy retailers, while also allowing these small business owners to continue providing their valuable health care services for patients,” said Bruce Roberts, R.Ph., executive vice president and CEO of the National Community Pharmacists Association, in a November 7 statement.

“H.R. 971 gives independent pharmacies the ability they desperately need by leveling the playing field with PBMs in the ever-changing pharmacy marketplace,” Roberts said. “As we all know, when there is competition at the retail level, consumers win with more choices and a higher quality of service and care.”

Higher Prices

Opponents of the bill say it will not help consumers in the long run because it will raise retail prescription drug prices.

“This proposal sets a dangerous precedent,” said Devon Herrick, a senior fellow at the National Center for Policy Analysis in Dallas. “Currently, community pharmacies that want the business of seniors in Medicare drug plans must work with the private drug plans and accept prevailing reimbursements in their region. This proposal looks like an attempt by community pharmacies to increase their profits by avoiding competition with large drug store chains. Since the plans are private, the result is higher prices for seniors–and taxpayers that subsidize the plans.”

According to a May 7 statement by the Pharmaceutical Care Management Association, an industry group representing PBMs, the bill “would give independent pharmacies the right to collude to raise prescription drug prices. The pharmacy antitrust exemptions in this legislation would increase prescription drug costs for Medicare and commercial payers by up to 11.8 percent, or $29.6 billion over five years.”

Higher Insurance Costs

The Federal Trade Commission (FTC) agrees. In an October 18 hearing, David Wales, deputy director of the agency’s Bureau of Competition, testified passing the bill will raise consumer prices.

“Simply put, although the Commission is sympathetic to the difficulties independent and family pharmacies face, the exemption threatens to raise prices to consumers, especially seniors, for much-needed medicine,” Wales testified.

“It also threatens to increase costs to private employers who provide health care insurance to employees,” Wales continued, “potentially reducing those benefits, and to the federal government, which was projected to have paid over 30 percent of the costs of all prescription drugs in 2006, all without any assurance of higher quality care.”

Would Allow Price-Fixing

Wales further argued the bill permits price-fixing, a blatant and unwarranted antitrust violation.

“Experience teaches that such conduct can be expected to increase health care costs, both directly through higher fees paid to pharmacies, and less directly by the collective obstruction of cost containment strategies of purchasers,” Wales explained.

Wales noted, “These higher costs would fall on consumers, employers–both public and private–who purchase pharmaceuticals and other products on behalf of their employees, and government assistance programs.”

H.R. 971 is not the only pending legislation aimed at improving community pharmacists’ well-being.

At press time H.R. 1474, the Fair and Speedy Treatment of Medicare Prescription Drug Act of 2007, and S. 1954, the Pharmacy Access Improvement Act of 2007, were awaiting hearings. Both bills would hasten payment of claims in order to mitigate pharmacies’ cash-flow problems.

Melissa Mercer ([email protected]) writes from Maryland.

For more information …

H.R. 971, the Community Pharmacy Fairness Act of 2007:

“The Cost of Independent Pharmacy Antitrust Exemptions,” by Peter J. Rankin, Monica Noether, and Emily Telleen-Lawton, CRA International, May 2007: